Advertising and the Evolution of Market Structure in the Us Car Industry

34 Pages Posted: 21 Jul 2001

See all articles by Paul A. Geroski

Paul A. Geroski

London Business School; Centre for Economic Policy Research (CEPR)

Mariana Mazzucato

The Open University

Date Written: June 2001

Abstract

This Paper focuses on a single simple stylized fact which stands out from the post-war history of the US Car industry, namely that industry concentration fell just at the same time as industry advertising expenditures rose sharply. Since both events were almost certainly caused by the entry and market penetration of (largely) foreign owned car producers, this stylized fact raises interesting questions about whether - and if so, how advertising affects entry. We use a model of consumer switching behaviour to help interpret the facts. The model predicts a simple linear association between market and advertising shares (which we observe fairly clearly at two different levels of aggregation in the data), and provides the basis for arguing that advertising can facilitate entry, but only for finite periods of time.

Keywords: Advertising, entry, US car industry

JEL Classification: L10, L62

Suggested Citation

Geroski, Paul A. and Mazzucato, Mariana, Advertising and the Evolution of Market Structure in the Us Car Industry (June 2001). CEPR Discussion Paper No. 2860. Available at SSRN: https://ssrn.com/abstract=276414

Paul A. Geroski (Contact Author)

London Business School ( email )

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Centre for Economic Policy Research (CEPR)

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Mariana Mazzucato

The Open University ( email )

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HOME PAGE: http://www.open.ac.uk/socialsciences/staff/people-profile.php?name=Mariana_Mazzucato

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